Alternatives firms get more clarity as Cayman opts for model 1 on FATCA

Bailey McCann, Opalesque New York: Opalesque first reported in January that while the final rules for the Foreign Account Tax Compliance Act (FATCA) in the US were issued, some key countries still had to decide which model of tax reporting they were going to choose. In essence, FATCA gives foreign countries two options - Model 1, which calls for individuals to report to a country what their taxable investments are, and that country reports back to the US on an automated basis. Or, Model 2 which requires investment firms or investors to set up their reporting relationship with the IRS mostly on their own, with some additional oversight from the local government. Some tax advisers were advising their hedge fund clients to hold off on some FATCA preparation until those decisions were made. This month, Cayman announced that it would be opting for model 1, on FATCA reporting.

According to an advisory from attorneys at Walkers, the Cayman Islands Government (CIG) will adopt model one in an effort to add credibility to its transparency initiatives. The country has also made a similar agreement with the UK. The full scope of rules and terms with both countries should be implemented in the next few months.